Sasha Naryshkine, Director at Vestact joined Alec Hogg on the CNBC Africa Power Lunch to get an in-depth view of how the markets were trading today.
It’s quite interesting, contrasting those two sets of interims: one from Dawn and one from Italtile.Â
They’re similar in terms of revenue, but they service different customers. They have over 12,000 customers on the Dawn website, but I think they said they have over 40,000 products.
Imagine doing a stocktake there.
Exactly. That’s three products per client, per annum but it’s more a case of how you view the South African landscape from a building point of view. They both seem pretty upbeat. You would think that investment in infrastructure and improving infrastructure bodes well for South Africa. In Italtile, you can see how illiquid that share price is because if you look at the graph, it seems like there’ve only been a few trades today and the ‘bid and offer’ spread is quite far apart. With Dawn, it’s slightly different. The performance over the last six months tells you that Italtile’s core market, which services LSM 4-10, have been improving at a faster pace than people have anticipated. Half of their CTM’s are franchised, so they have people running those businesses effectively for them under their brand, and half are owned by the company. It’s just another indication of how the market can get it wrong because Italtile’s share price inside those six months has done astonishingly well. As you mentioned, Dawn has lots of moving parts, but that’s an opportunity for Dawn to distribute to their African businesses, of which I think, they said they’ve been going for nearly ten years.  It’s a bit like fusing Adidas with Puma, where those are two brothers. They’re in a similar market, but I don’t think that Grohe is Hansgrohe. It’s a similar product offering.
Thanks for clarifying that. Looking at the two share prices and starting with Dawn, both of them have had big spikes. Dawn had a big downward spike. What caused that?
In terms of the sale, perhaps shareholders were expecting more after a pretty significant run-up, leading into that.
That stock was at R13.00 six months ago, and it’s at R6.25 today. Year-on-year, it’s not too bad. It’s only down 20-odd percent, but it’s halved in six months.
It was a classic Oliver Twist case in that it expected a hell of a lot more whereas with Italtile, it’s almost done exactly the opposite of what Dawn did.
R10.00 at the beginning of this year. It’s now sitting at R12.30.   Six months ago, it was at R8.50.
It’s done astonishingly well, but at very limited volume. Ordinarily, you would only take a decision to improve your bathroom or kitchen if you were confident about (a) the property market or (b) your own personal circumstances. Maybe that’s a sign of the economy having turned.
If I look back at Italtile’s share price over three years, it seems to be very much of a spike now. It was at R5.50 three years ago and bumped along for a long time. Eighteen months ago, it started running. It got to R10.00, from R6.00 so that’s almost a doubling. Then it just shot up in the last few months. Are we seeing something exceptional happening there, or is it a time that you should be saying ‘hang on’? These results are not spectacular.
Well, they’re not bad. They’re pretty good, but maybe it doesn’t match the share price so you’d obviously say the market got it wrong nine months ago, and it’s playing a bit of catch-up. It’s probably an indication of lower inflation equalling lower interest rates for longer, which is a positive for the property market. Maybe this is a precursor to a property boom. Although we’ve seen with Brent’s spike now and the Rand having weakened, maybe the consumers have gotten a reprieve with regard to energy prices. I’m not going to say it’s short-lived because it’s relative to where it came from, but expect a bump up in the petrol price of perhaps 80/90 cents next month. Well, that’s what the economists are saying.
Woolworths’ results came out last week.   It is a company, which we’ve been following over the last little while. They’ve had that first run now in Australia.
David Jones is tired and beaten up. Early indications are that they want to spend between AUD400m/AUD500m, which is a substantial amount, over the next five-odd years improving the David Jones offering, to make it the premium department store anywhere in the world. To you and I, it’s a bit of a foreign concept but those who’ve shopped in London or New York, would possibly compare it to Macy’s, Bloomingdale’s, or Harrods. They want to make David Jones, which owns significant properties in some of those big Australian cities, as a premium shopping destination. Anyone who’s been into one of those department stores knows that you don’t just go there in order to buy a few things. You go there for the entire experience, visit six or seven stores, and come out with more than you anticipated spending in the first place. That’s what they want to do. For southern hemisphere retailers, it is slightly easier than it is for northern hemisphere retailers, because you’re just half a season later. You get someone to explore all these fashion weeks and then you make the garments cheaper in cheaper environments, and sell it under your own brand. They have done a spectacular job. It must be said. The only negative there, could possibly be the dividend but I think you should anticipate that.
The people inside Woolworths have a huge regard for the CEO, Ian Moir. Maybe he’s looking back into history because it’s similar to Selfridge’s rejuvenated; how he as an American came into London and rejuvenated the whole department store experience in London, and built an empire at that point. Perhaps they’re doing the same thing now in Australia. If he says it’s going to be the Harrods of Oz (and perhaps pulling in that Chinese money), he could be onto something.
I think it definitely will. The entire systems network at David Jones is lagging, and even Australian retail is often recognised by many as lagging behind the rest of the globe. If they can just modernise it a little bit and make the shopping experience far superior, you’d have a pretty captive audience in Australia, and Sydney itself is one of the richest cities in the world. The commodities cycle and how it turns out could be a worry but the RBA have lowered interest rates in Australia, recognising that the housing market is starting to take a little bit of stress. Generally, Australia is a place that people want to live in and with the rich, Asian money moving in there, the prospects for Woolworths in Australia, look pretty good.
Well, it’s one, which I’ve not been happy about.
As shareholders, we’ve been happy.
The shareholders have been delighted, but we’ll see. It’s a big bet. Perhaps the whole department store experience is an idea, which has come at the right time for that part of the world. No doubt, if you’re living in China, it’s a lot easier to get to Australia than it is to get to London.Â
Exactly.
Sasha Naryshkine, Director at Vestact, giving us that insight on what’s going on in the markets at the moment.
